RBI is on right track, but India Inc calls for more

CEOs say the RBI could have been bolder given that inflation was within target

The Reserve Bank of India (RBI)'s move to cut rates by 25 basis points (bps) has not impressed India Inc, which was expecting at least a 50-bp cut. They said the cut was in the right direction, though it would not make much difference to their sagging capex plans.

Chief executives said quick and concerted action is needed from banks to make rate cut a reality. "This (RBI cut) will have to be followed up with more investment-oriented efforts from the government if we are to achieve sustained industrial growth," said Harsh Goenka, chairman RPG Enterprises.

Leaders of corporate groups said when virtually no investment was being made by the private sector, a rate cut of 50 bps could have triggered growth. "The 25-bp cut was expected anyway, hence this will not improve sentiment, which we badly want," said Prabal Banerjee, group chief financial officer, Bajaj Group.

The sector cannot think of investing further when there is surplus capacity and they are paying 12-13 per cent interest, Banerjee said. "While inflation is benign today, possibly, this was the best time to give impetus to industry and market. I do hope RBI will do some mid-term cut as there is already some precedence, even without waiting for another policy date," he added.

RBI could have been bolder as inflation was within target. "Nevertheless, policy rates are now at a five-year low of 6.50 per cent. This along with banks moving to MCLR and government reducing interest rates on small savings, hopefully lending rates will come down in the near term, which is welcome not only from a business perspective but also for households in the form of lower EMIs for home loans," said Harsh Pati Singhania, vice-chairman and managing director, JK Paper Ltd.

A promoter of a large company said they would not invest this financial year as there was excess capacity in the system. "Demand is not picking up and our capacity utilisation is around 70 per cent. Till demand picks up, we are not planning to press the pedal on investments," he said on the condition of anonymity.

According to India Ratings, corporate investment will remain muted in FY17 in India after recording negative growth in FY15 and a marginal uptick in FY16. Capex spending of the top 500 corporate entities, after hitting a peak of Rs 3.1 lakh crore in FY11, has been falling, as high finance cost eats into corporate profits.

Capacity utilisation of manufacturing companies is down 20 per cent from its peak. A few sectors such as steel and cement are expected to grow in low single digits because of the government's push to the infrastructure sector, while the automobile sector is expected to grow 10 per cent in FY17.